Wanxiang Group closes deal to acquire assets of A123 Systems

China's Wanxiang Group Corp. won U.S. government approval Tuesday to acquire the assets of A123 Systems Inc., including its plants in Livonia and Romulus, confirmed Wanxiang America President Pin Ni.

The two companies closed the transaction Tuesday evening.

A U.S. Bankruptcy Court judge approved the sale of A123 at a Dec. 11 hearing in Wilmington, Del., after Wanxiang beat out a joint bid from Milwaukee-based Johnson Controls Inc. and Tokyo-based NEC Corp. Wanxiang won with a $256.6 million bid.

However, China's largest auto supplier faces strong opposition from Congress in acquiring the Waltham, Mass.-based lithium-ion battery maker because of alleged national security and intellectual property issues. One of those opponents is U.S. Sen. Debbie Stabenow, a Michigan Democrat.

The politicians' concern with the deal involves the Chinese company's control over a government-funded company.

The U.S. Department of Energy has funded $132 million of a $249.1 million federal grant to A123 since 2009. The government has said it has a lien on the property and equipment at A123's Livonia and Romulus plants.

The U.S. Treasury Department's Committee for Foreign Investment in the U.S. approved the acquisition of A123's assets after months of convincing from Wanxiang and A123, Ni said.

"Both sides worked very hard, and I believe our lawyers are working very, very hard on getting the deal closed," Ni said in a phone interview.

Ni said A123 will retain its name and remain an independent private company under Wanxiang.

The Chinese supplier was unable to secure approval from the Committee on Foreign Investment in the U.S. on a $465 million pre-bankruptcy agreement to buy 80 percent of A123, forcing an insolvent A123 into bankruptcy in October.

A123 entered bankruptcy with JCI as a stalking-horse bidder before being outbid by Wanxiang in a December auction.

Jason Forcier, who heads up automotive operations for A123, said JCI's stalking horse bid was instrumental in closing the Wanxiang deal.

"That agreement was integral on achieving the return we got with the debt holders," he said. "It was very important to have the JCI deal as we got into the auction because it set the floor (for bidding)."

JCI fought against the Wanxiang bid in Washington, D.C., and didn't think the Chinese company would get government approval.

"It seems to me if Wanxiang was going to get government approval, it would have happened before bankruptcy so no one had to go through this mess," Alex Molinaroli, president of JCI's power solutions business unit, told Crain's in an interview Dec. 10. "They are spending money on assets they don't know if they can keep. And if that happens, that's where someone like us comes in."

However, Ni said employment at the plants in Livonia and Romulus will remain strong.

Forcier declined to confirm A123's current employment, but they have employed as many as 1,000 in Michigan.

Wanxiang agreed to lend A123 $50 million in November to keep it operating through bankruptcy.

"We've already committed significant funding to the operation, and, obviously, we want to see improvement," Ni said in a December interview. North America "is our home," he said. "We have nowhere to go, and we have a customer base to serve here, and we don't have other (battery) operations to consolidate into."

As part of the deal, Wanxiang bought A123's cathode powder plant in China and its share of a joint venture with Shanghai Automotive Industry Corp. called Shanghai Advanced Traction Battery Systems Co.

Forcier said the company isn't expected to break even this year, but expects strong growth in A123's stationary grid operations and its micro-hybrid automotive battery business. Micro-hybrids are vehicles that utilize lithium-ion batteries for smaller hybrid systems, like start-stop systems, combined with a traditional gasoline engine.

Grid business is expected to make up more than half of A123's total sales in 2013, Forcier said.

"We've been open for business and haven't lost any customers during the bankruptcy," Forcier said. "There's been pent up demand and customers wanting to award us business, but we have been too financially strapped to award us business. We now expect to close on some of those deals.

"But that doesn't change some of the market issues going on out there, especially in automotive, as we've seen a drop in demand in the entire industry," Forcier said. "Now that our balance sheet is in order, we've been trying to retool to focus on the micro-hybrids."